Why We Think Most “Brexit Panaceas” Are Ill-Thought-Through or Unviable

As expected, Theresa May and her government survived the no-confidence vote called by the opposition Labour Party after the UK Parliament overwhelmingly rejected her withdrawal deal. Now UK political attention must turn back to the real job at hand—navigating the United Kingdom’s exit from the European Union. Sandy Nairn, chairman of Templeton Global Equity Group and CEO of Edinburgh Partners, analyzes the options and argues that the most realistic is an extension of Article 50.

We suspect there was relief on both sides when Jeremy Corbyn’s vote of no confidence in the UK government failed. It appeared neither party actually wanted a general election. Labour’s position in opinion polls indicate it would be unlikely to win and, although some polls suggest the Conservatives could increase their majority, many Tory members of parliament would be reluctant to go into a campaign with Theresa May as the leader.

The question on everyone’s lips therefore is: “What happens now?” It is symptomatic of the level of debate that the options which tend to get offered as panaceas for Brexit are rarely thought-through or viable.

No Deal Can Happen by Accident

Some observers believe the rejection of May’s withdrawal agreement has increased the chances of the UK leaving the European Union (EU) without a deal, but we believe the probability is still low. Theresa May is aware of how disastrous the impact could be, even if the extreme Brexiteers are not. Of course, this does not mean it cannot happen by accident.

Under a no-deal scenario, trade with the EU will automatically be subject to the common external tariff.

In addition, the World Trade Organization’s (WTO’s) most-favored-nation principle means the EU has to apply the tariffs and quotas they apply globally to the United Kingdom.

Under WTO rules, the United Kingdom would be required to charge other countries the same tariff and quota as it charges the EU and vice versa. This means no special deals between the United Kingdom and the EU. If the United Kingdom waived tariffs/quotas on EU goods to smooth trade, then these would have to apply globally. One only needs to consider the impact of non-EU food imports into the United Kingdom and EU to understand how implausible this solution actually is.